Lawyers and non-lawyers frequently head communications with the phrase, "without prejudice".
However for many there is an assumed magic in these words which are believed to cloak the contents of communications from being relied upon in any dispute either in or outside of Court proceedings. Such assumption is wrong, and both the Manx and English Courts have made this very clear.
Without prejudice is a phrase used in offers made for the purpose of negotiating a settlement or compromise. It is a convenient short hand for "without prejudice to my/our rights" and it is used in order to guard against any argument by those with whom an argument exists that a concession offered in negotiations constitutes a waiver of a right or an admission of liability, in any legal proceedings.
The protection conferred by the without prejudice principle means that parties to the without prejudice negotiations may put in evidence in a dispute the content or detail, or the fact that an offer or concession has been made at all. However, as the summary below explains, for the protection of without prejudice to arise, there has to be some form of offer or negotiation content in the body of communication. As with so many general principles, however, as will be seen below, exceptions exist.
This is provided that it was made as part of attempts made in good faith to negotiate a settlement of the case or some of the issues; and as expressly or impliedly without prejudice. Furthermore, this is unless all the parties consent to revealing the existence of or detail of the negotiations, a concluded settlement has been reached, the offer has been made 'save as to costs' or disclosure is sought by an individual who is not a party to the proceedings in which the negotiations took place.
On October 17 2014, the Civil Division of the Court of Appeal, in England, provided the most recent (and there have been many) reminders to all as to the extent to which that phrase actually can be used, to have any effect.
Lord Justice Lewison, adopting some of the observations in Unilever Plc v Procter & Gamble Co  WLR 2436 said: "Without prejudice is not a label which can be used indiscriminately so as to immunise an act from its normal legal consequences where there is no genuine dispute for negotiation."
Lord Justice Lewison explained that due to timings of an imminent trial, "this Judgment will not contain a scholarly treatise" the Judgment very helpfully flags up a number of matters that should be borne in mind. As is often the case in arguments relating to disclosure and without prejudice communications, the issues before the Court focused on a chain of correspondence back and forth between, in this case, lawyers for one side, and accountants for the other, in the context of an argument in respect of debt and the restructuring of loan obligations.
In Bradford & Bingley Plc v Rashid  1WLR 2066, Lord Brown said "communications in question had been expressly made without prejudice and, generally speaking, such communications would attract the privilege even without the public policy justification of encouraging parties to negotiate and settle their dispute out of Court." However, Lord Mance disagreed and drew a distinction between a situation where genuine dispute existed and the phrase without prejudice appeared, as against a context where there is no dispute and that sometimes, "the phrase may be used unthinkingly or superfluously in which case it falls simply to be ignored. It is not open to a party or parties to extend at will the reach of the without prejudice rule or of the privileged it affords as regards admissibility or disclosure."
In Ofulue v Bossert,  2 WLR 749 in the House of Lords, Lord Hope said: "Where a letter is written without prejudice during negotiations with a view to compromise, the protection that these would claim would be given to it unless the other party can show there is a good reason for not doing so." Having reviewed various authorities and before turning to the particular facts of the matter before the Court, Lord Justice Lewison said: "My conclusions are these. There are two basis for the operation of the without prejudice rule. The first rests on public policy and that policy is to encourage people to settle their differences. However, in order for that head of public policy to be engaged there must be a dispute. The concept of dispute is given a wide scope so that open and shut negotiations may fall within the policy even though the other party has not rejected the offer. In order to decide whether this head of public policy is engaged, the Court must determine on an objective basis whether there was in fact a dispute or issue to be resolved. If there was not then this head of public policy is not engaged."
The Manx case of Staniforth & Otr v Dukes Diner & Otrs 2011 Civil Summary Procedure (unreported) cited the English Court of Appeal Case of Rush & Tompkins – v – GLC  AC 1280 at 1301 which, inter alia, made clear that as a general rule without prejudice communication should be inadmissible in subsequent litigation. His Worship the High Bailiff said: "the rule is not absolute and such material can be looked at when the justice of the case requires it."
His Worship went on to confirm that, "from the developing case-law it is plain that certain exceptions to the without prejudice rule have been established". The Supreme Court in October 2010 in the case of Oceanbulk Shipping & Trading SA v TMT Asia Ltd and others  3 WLR 1424 looked at the issue regarding the admissibility of without prejudice negotiations in respect of the subsequent interpretation of the meaning of a settlement agreement. In answering the question, should the interpretation exception be recognised as an exception to the without prejudice rule? Lord Clarke, in the leading judgment at paragraph 40, said:
I see no reason why the ordinary principles governing the interpretation of a settlement agreement should be any different regardless of whether the negotiations which led to it were without prejudice. The language should be construed in the same way and the question posed by Lord Hoffmann should be the same, namely what a reasonable person having all the background knowledge which would have been available to the parties would have understood them [i.e. the parties] to be using the language in the contract to mean. That background knowledge may well include objective facts communicated by one party to the other in the course of the negotiations. As I see it, the process of interpretation should in principle be the same, whether the negotiations were without prejudice or not. In both cases the evidence is admitted in order to enable the court to make an objective assessment of the parties' intentions.
Therefore, it is clear that the without prejudice rule only covers discussions that take place with a view to settlement and that this will not, therefore, cover general case management discussions. This is important to remember so as to avoid making an informal admission, or an acknowledgement of a state of affairs in an open, not without prejudice, forum.
Without prejudice is not an absolute cloak to preventing the content of a communication being relied upon by the recipients. Care needs to be taken to avoid the contents causing great prejudice if this reality is overlooked.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.